At first glance, we should all be outraged that State Street Bank allegedly ripped off California teachers and state pensioners for 8 years. California Attorney General Jerry Brown filed suit against the Boston-based bank Tuesday accusing them of “massive” fraud, by overcharging the state’s two huge pension funds to the tune of $56 million over the last eight years. Brown says State Street conveniently picked an exchange rate that always worked in the bank’s favor, and against the clients’ best interest, contrary to contractual obligations.
But on closer inspection this looks more like a naked attempt at boosting a Brown run for Governor than it is about protecting fire fighters' retirement funds.
Let me give you some other numbers. Calpers, the California Public Employees' Retirement System has $173 BILLION in assets. Calsters, the California State Teachers Retirement System, has $114 BILLION in assets.
I don’t question the merits of the suit, and yes, $56 million is a lot of money (with penalties, California is seeking $200 million from State Street). But in the context of a state that is $26 billion in the hole, and state pension funds of nearly $300 BILLION in assets, this smacks of Attorney General Brown trying to make headlines.
$56 million over 8 years? In a state of 36 million people, that works out to 19 cents per person per year. Brown wants another $144 million in penalties too. That’s another 50cents. Shoot, in his heyday, Elliot Spitzer would have used this lawsuit to wipe his nose after sneezing. Can't you hear Spitzer now?: "Jerry, how quaint. Let me show you how it’s really done when you want to be governor."
Brown took umbrage when I suggested he was doing this for political reasons (He recently filed papers allowing him to explore a run for governor). You can watch the interview at left. It was a good smack down and he scored a point or two. He also countered by asking why we invited him on in the first place. It’s a good question. Here’s why.
Because Brown's office started leaking the night before that he would be making a BIG announcement Tuesday about a lawsuit against a "major bank" which had committed "massive" fraud. His office wouldn't say which bank; it was a big secret to be revealed at a press conference. But we took him at his word and invited him on CNBC. You’d do the same thing if you were running a business-news network and an attorney general says he’s going to file suit against a major bank.
So he shouldn’t have been surprised when I asked about his political motives for making such a big show about this suit. It is politically expedient to go after “major banks” right now in this economic climate, especially when exploring a run for governor. Public officials have no right to expect a walk in the park regardless of who did the “inviting.”
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